The IRS gives a number of extra tax advantages to married couples. Many of these extra tax breaks come from home ownership. Married taxpayers get higher deductions for their mortgage as well as a higher threshold for avoiding capital gains on the sale of a home. Altogether, these make home ownership significantly less expensive for a married couple.
Mortgage Interest Deduction
When you buy a home with a mortgage, you can deduct the cost of the annual loan interest from your taxes. The IRS created this deduction to make home ownership debt less expensive. As of 2019, a married couple can deduct interest on up to $750,000 worth of home ownership debt on new mortgages. A single taxpayer, on the other hand, can only deduct interest on the first $500,000 of mortgage debt. This makes it more affordable for married couples to finance the purchase of larger homes.
Exploring Mortgage Insurance
Private mortgage insurance (PMI) is something you need to buy if you can't pay at least 20 percent of your house off with a down payment. It protects your lender in case you default on your loan. Recent changes to the federal tax code, however, have removed the opportunity to deduct premiums on PMI. This is an important and significant change, given the fact the fact that PMI premiums have been considered a deductible expense for years.
Understanding Capital Gains
Married couples get one more big tax advantage when they decide to sell their homes. Normally, when you sell a property for a gain, you need to pay capital gains taxes on your profit. However, when you sell your primary residence, some of your gains are tax-free. Married taxpayers can make up to $500,000 on the sale of their home and not owe any taxes. Single taxpayers only avoid taxes on up to $250,000 of capital gains.
Evaluating Home Ownership
A married couple gets these tax breaks regardless of who actually owns the home. You can get all these benefits even if you bought your house on your own and don't list your spouse as a joint owner. All you need to do to claim these tax deductions is file a joint tax return as a married couple. If you file separately, you lose these joint benefits and go back to being treated as a single taxpayer in terms of your home ownership.
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.